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BOYCE v. SOUNDVIEW TECHNOLOGY GROUP

United States District Court, S.D. New York


October 13, 2004.

MARK BOYCE, Plaintiff,
v.
SOUNDVIEW TECHNOLOGY GROUP, INC. (FORMERLY KNOWN AS WIT CAPITAL GROUP INC.), Defendant.

The opinion of the court was delivered by: HAROLD BAER, JR., District Judge

OPINION & ORDER

I. BACKGROUND

On February 20, 1997, Plaintiff, Marc Boyce ("Boyce"), and Defendant, Soundview Technology Group, Inc. ("Soundview"), signed a consulting agreement that granted Boyce the right to purchase 800,000 shares of Wit Capital Group Inc. ("Wit") common stock at a price of $1 per share. (Tr. 833:1 — 6).*fn1 The consulting agreement expressly stated that "the stock option grant may be exercised within one year if my [Boyce] employment services and/or consulting relationship with the company terminates completely." (Tr. 833:6 — 10). The consulting agreement also stated that "a copy of the incentive stock option agreement will be provided after signing the final agreement and the term/expiration date of the option grant will be the standard 10 years." (Tr. 833:10 — 13).

  Six months later, in October 1997, Boyce received an internal Wit memorandum enclosing a copy of a Wit Capital incentive stock option agreement dated February 10, 1997 bearing Boyce's name. The option agreement provided that "in the event that Boyce was terminated for cause or if Boyce terminated his relationship with Wit for any reason whatsoever . . . the option may only be exercised within one month after such termination." (Tr. 833:13 — 21). Boyce's employment terminated in May 1998.

  On April 5, 1999, Soundview denied Boyce's attempt to exercise his stock options. (Tr. 837:24 — 25). The focus of the trial was to determine whether "the consulting agreement is the only enforceable agreement, or instead, the incentive stock option agreement controlled the timing of when Boyce could exercise his option." (Tr. 833:24 — 834:2). A jury trial before me commenced on July 19, 2004 and concluded on July 23, 2004. The jury found Soundview's refusal to allow Boyce to exercise his options on April 5, 1999 was a breach of contract and awarded Boyce $400,000. (Tr. 850:8 — 851:8).

  On July 28, 2004, Boyce filed this motion for a new trial, pursuant to Rule 59 of the Federal Rules of Civil Procedure, limited to the issue of damages. In sum, Boyce argues that he is entitled to a new trial, limited to the issue of damages, because: (A) the Court precluded plaintiff's forward looking evidence and improperly charged the jury regarding damages; (B) the Court's "Wrongdoer Rule" instruction was legally incorrect; and, (C) the Court improperly excluded evidence dated after April 5, 1999.

  II. STANDARD OF REVIEW

  The decision to grant a new trial is unwarranted "unless the trial court is convinced that the jury has reached a seriously erroneous result or that the verdict is a miscarriage of justice." Munafo v. Metro. Transp. Auth., 03 Civ. 7831, 2004 WL 1878753, at *5 (2d Cir. Aug. 24, 2004) (emphasis added). A motion for a new trial should only be granted in special circumstances; for example, when the jury's verdict is "egregious." DLC Mgt. Corp. v. Town of Hyde Park, 163 F.3d 124, 134 (2d Cir. 1998).

  III. DISCUSSION

  A. The Court Precluded Plaintiff's Forward Looking Evidence or Improperly Charged the Jury Regarding Damages

  It is uncontested by the parties involved in this case that any damages for a breach of contract should put the non-breaching party in the same economic position he would have been, but for the alleged breach. (Tr. 840:8 — 19). It is also uncontested by the parties that, in a breach of contract action, damages should be calculated from the date of the breach, not some subsequent time, and the parties agreed that any damages be determined as of April 5, 1999. Boyce Opening Br. at 1, Boyce v. Soundview, 03 Civ. 2159 (Jul. 28, 2004); Soundview Br. at 5, Boyce v. Soundview, 03 Civ. 2159 (Aug. 25, 2004).

  Boyce, among other things, contests the Court's (1) refusal to allow "forward looking" evidence and (2) refusal to follow Sharma v. Skaarup Ship Mgmt. Corp., 916 F.2d 820 (2d Cir. 1990), and instruct the jury that damage awards should be based upon what knowledgeable investors anticipated the future conditions and performance would be at the time of the breach.

  1. Forward Looking Evidence

  The Second Circuit has repeatedly rejected Boyce's desire to engage in a hypothetical damage assessment of potential profits favoring, instead, more reliable established facts. In Lucente v. Int'l Bus. Mach. Corp., 310 F.3d 243 (2d Cir. 2002), for example, the Second Circuit held that a district court "ignored binding precedent" and rejected the district court's decision "to employ a conversion measure of damages in breach of contract cases," opting in favor of calculating damages at the time of the breach. Id. at 262-263. Again, in Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 196 (2d Cir. 2003), the Second Circuit held that "damages for breach of contract should put the plaintiff in the same economic position he would have occupied had the breaching party performed the contract" and "flatly rejected under New York law the use of the conversion measure of damages in a breach of contract case." Id. at 196-197.

  Following Lucente and Oscar Gruss, the Court drew a bright line, excluding all evidence of the value of the stock dated after April 5, 1999 because, as the Second Circuit unequivocally stated, "New York courts have rejected awards based on what the actual economic conditions and performance were in light of hindsight." Oscar Gruss, 337 F.3d at 196 (citations omitted). Estimates as to the potential value of a stock or predictions as to future stock prices are notoriously unreliable. Admitting market projections of Wit shares in the months following the breach as evidence would be tantamount to relying on the Farmer's Almanac predictions of rain for the upcoming harvest.

  Accordingly, Boyce's motion for a new trial on this ground is denied.

  2. Improper Jury Charge: "Anticipated Future Conditions"

  At trial, the Court instructed the jury that:

Fair market value of an asset such as stock is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. You have heard a lot of testimony and argument on this issue, including Dr. Ma's opinion. Keep in mind that generally, the sale price for the same asset, sold close to the time to the asset being valued (here April 5, 1999), if it is the result of arm's length negotiations, is the best evidence of fair market value.
(Tr. 841:6 — 15).

  While New York law provides that the common measure of damages in breach of contract cases to be "the difference between the contract price and the fair market value of the item or property being sold at the time of the breach," Sharma v. Skaarup Ship Mgmt. Corp., 916 F.2d 820, 825 (2d Cir. 1990), determining the "fair market value" is anything but simple. The Supreme Court has defined the term, "fair market value," as the price that a willing buyer would pay a willing seller in a fair transaction. See United States v. Cartwright, 411 U.S. 546, 551 (1973) ("The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant fact."); Schonfeld v. Hilliard, 218 F.3d 164, 178 (2d Cir. 2000) (noting that New York State courts have recognized the Cartwright standard). In Oscar Gruss, the Second Circuit limited the scope of "fair market" damage assessment in breach of contract cases to the price at the time of breach. 337 F.3d at 196.

  Here, I charged the jury as to how to determine "fair market value." The "hypothetical market standard" was charged to the jury because, on or about the date of the breach of the contract, the shares were in a private company and the stock was not actively traded on any exchange. The lack of a traditional market required the jury to determine what "a hypothetical willing buyer, being under no compulsion to sell and having reasonable knowledge of the relevant facts, would pay for the asset at issue." Schonfeld, 218 F.3d at 178 (collecting exemplary cases).

  Boyce's motion for a new trial on this ground must be denied.

  B. Improper Jury Charge: The "Wrongdoer Rule"

  Boyce further alleges that the Court's charge regarding the "Wrongdoer Rule" was legally incorrect. Boyce argues that after adequately demonstrating that Soundview breached the contract and establishing $400,000 in damages, the Court's incorrect jury instruction misstated the essence of Schonfeld, 218 F.3d at 182, and Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 496 (2d Cir. 1995), as the burden of uncertainty was improperly shouldered by Boyce. The issue was not the existence of damages, only the amount and, therefore, Boyce should not have been required to demonstrate "a reasonable estimate of the amount of plaintiff's damages, and defendant's wrongdoer [sic] is to blame for plaintiff's inability to offer more precise evidence." (Tr. 842:12-16).

  Although damages do not have to be proven with mathematical precision, before a party can recover, the amount of damages must be demonstrated with "reasonable certainty." Schonfeld, 218 F.3d at 172. The "reasonable certainty" requirement demands that the plaintiff demonstrate more than "merely speculative, possible or imaginary" damages. Id. at 172. In order to shift the burden, the damages must be "capable of measurement based upon known reliable factors without undue speculation." Id. at 172. When the existence of damage is certain, but the amount cannot be ascertained with "reasonable certainty," the burden of establishing "reasonable certainty" rests with the plaintiff. Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918, 926 (2d Cir. 1977). When, however, a plaintiff has demonstrated the amount of damages with reasonable certainty, "the wrongdoer must shoulder the burden of the uncertainty regarding the amount of damages." Indu Craft, 47 F.3d at 496.

  The charge given by the Court correctly characterized the "Wrongdoer Rule" outlined in Schonfeld and Indu Craft:

First, this wrongdoer rule is a rule as to [the] alleged burden of proof and it has to do with a shifting of the burden of proof to the defendant on the issue of damages. And the rule states that the alleged wrongdoer, the defendant, most frequently the defendant, may not object to the plaintiff's reasonable estimate of the amount of damages when it is supported by evidence because that estimate was not based on more accurate data which the law goes on to say must be shown to say as a consequence of the wrongdoer's misconduct making that additional evidence unavailable. So for this rule to be applicable and the burden to prove damage to shift to the defendant, you must find both the plaintiff offered a reasonable estimate of the amount of plaintiff's damages, and defendant's wrongdoer [sic] is to blame for plaintiff's inability to offer more precise evidence.
(Tr. 842:2 — 16)

  The "reasonable estimate" portion of the jury charge encapsulates the requirement articulated in Schonfeld and Indu Craft. A charge to the jury which permitted a damage assessment based upon "a multitude of assumptions" that require "speculation and conjecture" would fail to provide the requisite certainty. Schonfeld, 218 F.3d at 173. Absent such language, the charge to the jury would enable Boyce to prove the existence of damages without requiring any reasonable certainty as to the amount, entitling him to a free pass once he proves only the existence of damages.

  Boyce's motion for a new trial based upon the Court's failure to charge the correct. "Wrongdoer Rule" is denied.

  C. Evidence Preclusion

  Boyce, lastly, argues that the Court's decision to preclude post-April 5, 1999 evidence to demonstrate the true situation as of April 5 was erroneous as a matter of law. Boyce contends the Court: (1) misinterpreted relevant case law regarding the introduction of post-breach evidence and incorrectly excluded (2) the testimony of Mr. Antoon and (3) portions of the post-breach Registration Statement.

  1. Evidence Subsequent to the Date of Breach

  Boyce argues that the Court's decision to excluded evidence that would demonstrate that had Soundview performed, Boyce, as a "reasonably knowledgeable investor, would have held his stock until he would have been able to sell the stock on the public market" was incorrect as a matter of law.

  Boyce points to three district court decisions in support of this proposition. First, Boyce cites to Phansalkar v. Andersen Weinroth & Co., L.P., 00 CIV. 7872, 2002 WL 1402297 (S.D.N.Y. Jun. 26, 2002). Boyce argues that Phansalkar supports the proposition that a jury may properly consider "what would most probably have occurred if the defendant performed." Id., 2002 WL 1402297, at *21. Second, Boyce refers to Madison Fund v. Charter Co., 427 F.Supp. 597, 608 (S.D.N.Y. 1977). In calculating damages due for a breach of contract involving privately placed shares, the Madison court resolved uncertainties as to when the purchaser of such privately placed shares would have sold them in favor of the purchaser, not in favor of issuer. Id. at 608-609. Third, Boyce points to Commonwealth Assoc. v. Palomar Med. Tech., Inc. 982 F.Supp. 205 (S.D.N.Y. 1997). Again, Boyce argues for including in a damage assessment profits lost by virtue of defendants' failure to honor its obligations.

  Following the district court's decision in Phansalkar, the Second Circuit decided two cases on the issue of loss profit calculations and evidence in breach of contract cases. First, the Second Circuit implicitly overturned the conversion calculation for damages in a breach of contract case enunciated in Phansalkar and Madison Fund, expressly requiring damages to be calculated from the time of breach. Lucente v. Int'l Bus. Mach. Corp., 310 F.3d 243, 263 (2d Cir. 2002) (rejecting under New York law the use of the conversion measure of damages in a breach of contract case); Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 196 (2d Cir. 2003) (agreeing that damages should be determined as of the date of the breach). Second, the Second Circuit's decision in Oscar Gruss limited the effect of Palomar. In Palomar, the breach of contract and plaintiff's knowledge of the breach occurred independently. Id. at 197. The defendant in Palomar continued to pay the financial consultation costs to the plaintiff and, consequently, the plaintiff was justified in assuming that the defendant would honor its obligation. Id. at 197. In Oscar Gruss, however, the relevant breach occurred when the defendant failed to deliver the warrants. Id. at 197. Unlike the plaintiff in Palomar, the plaintiff in Oscar Gruss knew immediately that defendant had breached. Id. at 198. The Oscar Gruss damage assessment, articulated a second tier of analysis. Once a breach of contract was established, the damage calculation required a determination of when the non-breaching party became aware of the breach. Damages are to be calculated at the time the party became aware of the breach, not some abstract future date.

  The Second Circuit's decisions in Lucente and Oscar Gruss plainly supports the Court's decision to exclude evidence subsequent to the date of breach. In Oscar Gruss, for example, the Second Circuit applied the firmly rooted law that breach of contract damages must be calculated from the time of the alleged breach and not, as Boyce suggests, with 20/20 hindsight from some future date. As in Oscar Gruss, Boyce learned of Soundview's breach immediately upon Soundview's refusal to exercise Boyce's options, and damages must be measured from that moment. Id. at 197. Any evidence as to the length of time Boyce intended, or might have intended, to hold the shares of Wit stock is simply beside the point. Id. at 198.

  2. Mr. Antoon's Testimony

  Boyce also argues that the Court's evidentiary rulings prevented Boyce from putting his own valuation expert, Mr. Antoon ("Antoon"), on the stand Boyce contends that Antoon's report, based on a forward-looking approach and documents, was incorrectly excluded by the Court.

  At the Daubert hearing preceding trial, the Court limited the scope of Boyce's expert witness testimony because of the expert's reliance on events occurring after April 5, 1999. Rather than relying on the facts as they were understood at the time of the breach, Antoon impermissibly relied upon "the IPO price" to establish a basis for assessing the value of Wit's stock. (Jul. 19, 2004 Trial Tr. 14:3-12). Such a damage assessment would have, once again, impermissibly consisted of hindsight evidence. (Jul. 19, 2004 Trial Tr. 15:10 — 23; 17:14 — 19). Antoon's expert testimony was correctly excluded.

  3. Post Breach Registration Statements

  Finally, Boyce argues that the Court improperly excluded Wit's post-breach Registration Statements. Boyce maintains that the Court's decision to deny any portions of Registration Statements into evidence and, instead, permit Boyce to argue the significance of the figures contained therein only in summation was both prejudicial and incorrect.

  As discussed above, Lucente and Oscar Gruss require the exclusion of evidence reflecting the post-breach value of Wit stock. The Registration Statements are typical of such evidence. Boyce's motion for a new trial based upon the Court's preclusion of evidence and testimony dated after April 5, 1999 is, therefore, denied because Boyce fails to demonstrate a "seriously erroneous result" or a verdict that "is a miscarriage of justice." Munafo, 2004 WL 1878753, at *5.

  IV. CONCLUSION

  For the foregoing reasons, the Plaintiff's motion for a new trial, pursuant to Fed.R. Civ. P. 59, limited to the issues of damages is denied for failure to demonstrate a "seriously erroneous result" or a verdict that "is a miscarriage of justice." Munafo, 2004 WL 1878753, at *5.

  The Clerk of the Court is requested to close this motion and any remaining motions, and remove this case from my docket.

  IT IS SO ORDERED.


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